Tax Tips from Steve Weber

Tax tips for Farmers Tax Extenders are coming! Congress to Make Key Provisions Permanent and President is Expected to Sign Into Law Congress is embracing the holiday season by providing taxpayers a gift in the form of tax extenders. The Protecting Americans from Tax Hikes (PATH) Act of 2015 is a bipartisan agreement between both houses of Congress that permanently extends many popular business and individual incentives. We hope President Obama will sign these to sign into law in the coming days. Below are some key provisions from the PATH Act: Enhanced child tax credit made permanent The child tax credit (CTC) is a $1,000 credit. To the extent the CTC exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit (the additional child tax credit) equal to 15 percent of earned income in excess of a threshold dollar amount (the “earned income” formula). Until 2009, the threshold dollar amount was $10,000 indexed for inflation from 2001 (which would be roughly $14,000 in 2015). Since 2009, however, this threshold amount has been set at an unindexed $3,000 and is scheduled to expire at the end of 2017, returning to the $10,000 (indexed for inflation) amount. The provision permanently sets the threshold amount at an unindexed $3,000. Enhanced American opportunity tax credit made permanent The Hope Scholarship Credit is a credit of $1,800 (indexed for inflation) for various tuition and related expenses for the first two years of post-secondary education. It phases out for AGI starting at $48,000 (if single) and $96,000 (if married filing jointly) – these amounts are also indexed for inflation. The American Opportunity Tax Credit (AOTC) takes those permanent provisions of the Hope Scholarship Credit and increases the credit to $2,500 for four years of post-secondary education, and increases the beginning of the phase-out amounts to $80,000 (single) and $160,000 (married filing jointly) for 2009 to 2017. The provision makes the AOTC permanent. Enhanced earned income tax credit made permanent Low- and moderate income workers may be eligible for the earned income tax credit (EITC). For 2009 through 2017 ,the EITC amount has been temporarily increased for those with three (or more) children and the EITC marriage penalty has been reduced by increasing the income phase-out range by $5,000 (indexed for inflation) for those who are married and filing jointly. The provision makes these provisions permanent. R&D Tax Credit Made Permanent & Modified The provision permanently extends the Research and Development (R&D) Tax Credit. Additionally, beginning in 2016, eligible small businesses ($50 million or less in gross receipts) may claim the credit against their alternative minimum tax (AMT) liability, and the credit can be utilized by eligible small businesses against their payroll tax (i.e., FICA) liability. 179D Energy Efficiency Deductions Extended for Commercial Buildings through 2016 Deductions of up to $1.80 per square foot for energy efficient commercial building property would be extended for 2 more years through the end of 2016. Designers of government-owned buildings remain eligible for these deductions as well. 45L Energy Efficiency Credits Extended for Multifamily & Residential Developers through 2016 Low-rise apartment developers and homebuilders are eligible for a $2,000 tax credit for each new or rehabbed energy efficient dwelling unit that is first leased or sold by the end of 2016. Taxpayers also have the ability to amend returns to claim missed tax credits from previous years. Bonus Depreciation Extended & Phased Down through 2019 Bonus depreciation applies only to new property and it’s so great you must elect out of it as everyone gets it off the bat. Unlike section 179, bonus can be used to create a net operating loss. 50% Bonus Depreciation provisions would be extended through the end of 2017 and phases down to 40% in 2018 and 30% in 2019. 179 Expensing Thresholds & 15-Year Life for Qualified Real Property Made Permanent For tax years beginning in 2015, the deduction and investment limits are $25,000 and $200,000 respectively, unless they are extended by congress. Section 179’s increased expensing amounts of $500,000 and limited to $2.5 million for small businesses should become permanent. People can’t do any tax planning at year end with these rules in flux. Additionally, the 15-year recovery period for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property has been made permanent, and qualified property here may be eligible for expensing under the special rules of Section 179. Watch for these extenders to be signed before you pull the trigger on that new green combine (It’s my color). Merry Christmas. Steve Weber, CPA